We came across a bearish thesis on Gray Television, Inc. (GTN) on Enterprising Investor’s Substack by Tyler Moody. In this article, we will summarize the bears’ thesis on GTN. Gray Television, Inc. (GTN)'s share was trading at $4.69 as of Nov 15^th. GTN’s trailing and forward P/E were 3.13 and 1.13 respectively according to Yahoo Finance.

A television broadcaster preparing a new Spanish-language program for its viewers.

Gray Television (GTN) presents a highly risky investment, burdened by structural industry challenges, an alarming debt load, and reliance on a volatile revenue stream. While its valuation, trading at a price-to-book value of 0.25, may initially appear enticing, a closer examination reveals deeper issues that undermine its investment case. The company, with a $500 million market cap, operates in the declining broadcast TV business, a "melting ice cube" industry facing waning viewership and ad revenue as digital platforms dominate.

One of GTN’s most glaring vulnerabilities is its excessive debt. With $5.9 billion in long-term debt versus $2.7 billion in equity, its debt-to-equity ratio stands at an eye-watering 2.2. Even more concerning, its trailing twelve-month (TTM) EBITDA of $1.06 billion results in a debt-to-EBITDA ratio exceeding 5.5—levels that typically spell danger in industries lacking growth. The bulk of this debt stems from acquisitions, including a $2.6 billion purchase in 2019 and a $3.3 billion deal in 2021, which have added $2.6 billion in goodwill to the balance sheet. Notably, this goodwill represents almost all of GTN’s equity, rendering the low price-to-book ratio highly misleading. Stripping out goodwill shows GTN trading at approximately 2.5 times book value, which is far less attractive and highlights limited underlying asset value.

The cyclical nature of GTN’s revenue exacerbates its precarious position. Election years provide temporary boosts to political ad revenue, a critical income source. In 2022, GTN benefited from midterm elections, generating nearly $1 billion in operating income. However, revenue and operating income plummeted in 2023 to $450 million, a stark reminder of the inherent volatility. Compounding the issue, GTN’s interest expense has surged to $480 million annually, leaving the company in a precarious position during off-election years where it struggles to cover interest payments. Management’s strategy of using excess cash from election cycles to chip away at debt hinges on political ad spending remaining robust, which failed to materialize this year, further eroding confidence in its financial health.